Well, I was talking to one of my players and told him about this. Thinking I would throw in some Status Quo encounters. He freaked out a bit. He said why put encounters in the world that have nothing to do with the players. He said that would be a waste of time and that I was trying to kill the party. Is this true? That the sole purpose of Status Quo encounters are to kill the party. I thought they made the world a more living breathing thing. What do you guys think?
As Monte makes quite clear in the DMG (p. 100), Status Quo encounters give the world "a certain sense of verisimilitude".
(Aside: "Verisimilitude" is one of those terms you have to use instead of "realism" so people won't give you a knee-jerk response about dragons and fireballs and how none of this is real anyway.)
The purpose of Status Quo encounters is most certainly not "to kill the party", but they obviously can, so Monte warns, "If you decide to use status quo encounters, you should probably let your players know about this....If players know ahead of time that the setting includes status quo encounters that their characters might not be able to handle, they will be more likely to make the right decision if they stumble upon a tough encounter."
How do you get the optimal mix of verisimilitude and nonlethality? First, as Monte and others have pointed out, you have to warn the players ahead of time. There's a lot of subtle meta-gaming going on all the time, and a big part of it is assuming you can tackle what the DM throws at you -- and that you're supposed to. After all, our heroes routinely tackle dangerous quests assuming they'll come out OK, when they have no good in-game reason to believe that.
(Aside: The "Red Queen" nature of D&D encounters can really break verisimilitude. As much as the PCs progress, their enemies progress exactly the same amount. First it's four Goblins, then four Hobgoblins, then four Bugbears, and so on.)
Next, foreshadow Status Quo encounters early in the campaign as background material. Later, when our heroes finally do tackle the dragon in the hills or the king's personal bodyguard, they'll have a strong sense of accomplishment. Before they're ready though, they'll know to run. (Victim alluded to this idea.)
Schmoe makes a great point about giving the party options. If they have legitimate choices, (a) they can't feel too "hosed" by their own decisions, and (b) those choices add even more verisimilitude to the campaign. Everything feels less artificially scripted.
In general, I think the PCs have to encounter monsters and situations they just don't beat in a head-to-head confrontation. Put the PCs up against a Basilisk or Cockatrice long before they have the power to beat it, but make sure they passed an Awakened Dire Weasel along the way; the weasel can kill it for them. Or have a giant, plodding evil marauding through the Dwarven mines. The PCs can't beat it, but they can get around it to rescue trapped miners, and they may hold it off momentarily. Not all encounters should be kill or be killed.
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